Despite arguments to the contrary from the Obama administration, mounting evidence suggests that the U.S. economy is rapidly falling back into negative growth territory. More Americans are out of the workforce than ever before, median household incomes are at levels not seen since 1967, and consumer spending is coming to a veritable standstill. The crisis is apparently so significant that a Federal Reserve governor recently said U.S. policymakers are crafting regulations that will force bank depositors to cover any losses should their financial institutions fail.
The question that many are asking is, how did this happen? How, after six years of recovery efforts and trillions of dollars printed, is it possible that the economy is not booming again?
This week the Federal Reserve published a report that claims to have figured it out and it turns out that the renewed economic downturn has nothing to do with foreign outsourcing, high taxation, increased health care costs for business or rising consumer prices for food and energy.
No, according to the Fed it is your fault. Apparently, you are not spending enough money. In order for the economy to recover you need to stop hoarding cash now and get out there and start buying more homes, cars, vacations, and electronics. Otherwise, you’ll only have yourself to blame when the system comes unhinged.
From the St. Louis Federal Reserve:
The issue has to do with the velocity of money, which has never been constant, as can be seen in the figure below . If for some reason the money velocity declines rapidly during an expansionary monetary policy period, it can offset the increase in money supply and even lead to deflation instead of inflation.…
During the first and second quarters of 2014, the velocity of the monetary base2 was at 4.4, its slowest pace on record. This means that every dollar in the monetary base was spent only 4.4 times in the economy during the past year, down from 17.2 just prior to the recession. This implies that the unprecedented monetary base increase driven by the Fed’s large money injections through its large-scale asset purchase programs has failed to cause at least a one-for-one proportional increase in nominal GDP. Thus, it is precisely the sharp decline in velocity that has offset the sharp increase in money supply, leading to the almost no change in nominal GDP…
So why did the monetary base increase not cause a proportionate increase in either the general price level or GDP?
The answer lies in the private sector’s dramatic increase in their willingness to hoard money instead of spend it. Such an unprecedented increase in money demand has slowed down the velocity of money
Top tier economists, it seems, are unable grasp why consumers have decided to hoard – in other words, save – their money even though the central bank is engaged in an unprecedented monetary expansion.
The answer is simple, really, and you don’t need to look at detailed government charts and statistics to figure it out….
First it was “deadbeat homeowners” who were summarily evicted. Now it’s greedy savers who see through the smoke and mirrors of the bought and paid for media. Not just an insult to the victim, it’s an insult to the audience’s intelligence.
Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton [Friedman] and Anna [Schwartz]: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again. — Ben Bernanke, lying through his teeth.
All a terrible mistake which led to the biggest concentration of wealth in human history up to that time. And guess who profited the most? The shareholders of the federal reserve inc.